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Is Your Teen Money Smart?

Sure, they know the color of money, but not where the green comes from and how fast it disappears. Learn the right way to get kids to spend less, save more, and help your family manage the high cost of living.

Is Your Teen Money Smart?

Not long ago, my 16-year-old daughter started her first actual paying job. The night I watched Maggie limp away from her inaugural shift as a waitress at the pizza restaurant, I struggled with two different reactions. "No! She's too young to worry about earning a living," whimpered Nice Mommy. But my inner tough guy, who'd gotten tired of endless demands for clothes and makeup, hissed, "Yessss! Now she'll understand how many tables a night it takes to buy a pair of designer jeans."

Like many parents of teens, I'm guilty of sending my kids mixed messages about money. I'd like to boast that I've taught them lessons about earning, saving, and smart spending since they were little — just like I'd like to say I've socked something away for their college education with every paycheck. Truth is, I've screwed up — not by saying the wrong things, but by not saying anything. Maybe I dreaded sounding like my dad, whose constant "value of a dollar" lecture always ended with his turning down the thermostat and telling everyone to put on a sweater. Instead, I've tried to make my kids feel secure knowing that they will always be warm, fed, and clothed in something that is at least semi-cute. I've taken every opportunity to remind them that the world is rich with opportunity and potential. "Go ahead," I've often said, writing out the checks for karate and horseback riding lessons. "There's no limit to what you can be." Problem is, my bank account isn't bottomless.

Discuss Budget Basics

I take some comfort in the fact that most parents are just like me. How much or how little Mom and Dad make is usually a closely guarded secret. (Yikes! What if the kids blurted it out to friends or neighbors?) But experts say that at some point it's important to explain the basics of money management. "I'm all for sheltering kids from the difficult parts of life when it's appropriate," says Alexander T. Vazsonyi, PhD, a professor of human development and family studies at Alabama's Auburn University. "But unless children are taught the cost of essentials like food, energy, and housing, how will they know?" And it's got to be put in a way they understand, he adds. For example, that new video game system your tween wants? Let him know it's equal to an entire month of the family's discretionary spending money.

Even if you aren't comfortable telling your child your salary, it's really useful to talk about choices and limits. You can start the conversation when your kids begin elementary school, explaining that most people get only so much every two weeks, and how they need to budget it to cover a wide range of expenses, including savings. Many experts suggest starting to give an allowance for regular chores around the house. Once kids get the opportunity to pocket a little cash by cutting grass or bringing in the neighbors' mail while they're on vacation, talk to them about how much they should spend, save, or donate to charity. Have your kids sit down with you every now and then while you write checks for the things they love most — cable TV, phone service, the car — so they can see how quickly a few thousand bucks dwindles to the low three digits.

And they need to know, because they burn through money like crazy. According to a study by Teenage Research Unlimited, based in Northbrook, Illinois, teens spend close to $160 billion a year (most of that coming from — you guessed it — the Bank of Mom and Dad). Even when teens hold down a job, they tend to spend all their earnings on clothes, cosmetics, electronics, music, and hanging out with friends. One study found that more than half of high-school kids with jobs say they make no contribution to the family's living expenses, and 23 percent say they contribute only a little.

Now that Maggie's working, we've had some intense conversations about who pays for what. My husband and I are happy to cover a certain amount for clothes, but beyond that, she knows she's on her own. (My son, Evan, 14, couldn't care less about what he wears, but when he lost a new pair of lacrosse cleats the first week of practice, he knew he'd have to spend his earnings from dog-sitting to replace them.) It's been a real education watching my little girl wade into financial reality. Because I had advanced Maggie some shopping money until paycheck No. 1 cleared, we had another first: She carefully wrote me a check for $50 and handed it over when we were in line at the bank. I admired her loopy signature and her printed name in the corner. I thought about preserving this milestone in her baby book, next to one of her teeth or her first report card. Then I just smiled and deposited it.

Teens and Jobs: An Excellent Adventure

Many parents, convinced that their kids are destined for bright, bold futures, discourage their teens from working part time. Only about 27 percent of 16- and 17-year-olds hold jobs during the school year, and only half during the summer. In some cases, parents are right to avoid pushing their teens into the labor force. Studies have shown a link between working too many hours and higher dropout rates, not to mention a greater likelihood of delinquency, alcohol use, and other antisocial behaviors. But most data suggest that work benefits teens, as long as they don't do it too soon (age 16 or 10th grade is ideal) or too much (no more than 20 hours a week during the school year). "From learning the importance of showing up on time to benefiting from having a mentor, work gives kids excellent experiences," says Dr. Vazsonyi. Some other life lessons your kids may learn:

"I don't need so much stuff." Once they start working, many kids realize there are more important things than buying cool clothes and more CDs. A recent poll by Junior Achievement found than "saving for college" was the primary motivator for teens with summer jobs.

"I make time for what's important." One study by the University of Chicago found that part-time work didn't cut into the hours they spent studying. What's more, those who worked between 11 and 20 hours per week spent 2.4 fewer hours watching TV than kids without jobs.

"I can do anything." Work can be intimidating at first, but once kids get the hang of it, they gain confidence, which can last a lifetime. Teens who work are less likely to be unemployed as adults and more likely to have higher earnings than those who didn't, according to research by Loyola University in New Orleans.

The ABCs of Money Management

If grown-ups have trouble spending smart, think about the guidance your kids need. Experts say you can give them a helping hand by...

Talking about trade-offs. Explain to your kids that managing money requires setting priorities. Instead of saying, "We can't afford that," which might scare them, say, "It's not in our budget right now" or "There are more important things we need." When you do splurge on something big, tell them the ways you've cut back in order to afford it.

Introducing them to plastic — the right way. Open a checking account for your kids when they turn 15 or 16 (bank regulations vary) so they can learn how to use a debit card. "Balancing a checkbook is one of the chores of life," says Dave Ramsey, author of The Total Money Makeover (Thomas Nelson). "Hold them accountable for it every month."

Having them spread the wealth. Help your kids divvy up their earnings by suggesting they spend 40 percent, save 50 percent, and give the rest to charity.

Encouraging an open dialogue. Ironically, parents who are careful to talk to their kids about hard stuff like sex and drugs, never explain the simple concepts of budgeting. One survey found that 79 percent of all college freshman say they've never had a conversation with their parents about managing their money, and 23 percent say it's okay to blow as much as $500 without first checking with Mom and Dad. Start a two-way conversation as soon as your kids start working, making your spending expectations — and limits — perfectly clear.

Reminding them what money can and can't do. Today's teens live in a world where shopping is widely considered a harmless recreation, and it's easy for them to think that happiness is something they can buy at the mall. You've got to explain otherwise — and set a good example yourself. "If you buy a pair of shoes to medicate the stress you're feeling, kids see that — they're quick learners," says Ramsey. So keep retail therapy — theirs and yours — to a minimum.